Game Changer: Punitive Damages for Unseaworthiness

On March 9, 2017, in a stunning legal decision, the Washington State Supreme Court held that injured seamen are entitled to punitive damages as a result of the vessel’s unseaworthiness. As far as legal bombs being dropped on vessel owners, this decision will easily be one of the biggest of 2017.

A Cautionary Tale

Like all good stories, this one started on a boat – specifically the F/V American Triumph, a 251-foot, 4,294-gt catcher/processor owned by American Seafoods. These vessels have powerful hydraulic winches that are used to haul in the vessel’s enormous nets. After the fish are brought aboard, a deckhand opens a hydraulic steel hatch in the aft of the vessel, which allows the fish to drop into tanks below the vessel’s deck. Sometimes, however, not all the fish pulled aboard the vessel will fall through the open aft hatches. From there, deckhands must push the fish into the open hatches with shovels, and sometimes the last bit of fish needs to be cleared and pushed into the hatches by hand. Although the system is efficient, it is still not perfect and incredibly dangerous.

It’s January 12, 2015, and Allan Tabingo is a deckhand trainee on the F/V American Triumph. The vessel had just hauled in a respectable catch, and Tabingo was tasked with making sure the remaining fish found their way into the tanks below. Tabingo was on his hands and knees pushing the last remaining fish into the open hatch when another operator accidently engaged the hatch’s hydraulics. Immediately realizing the mistake, the operator tried to stop the hatch from closing on Tabingo by pulling back on the hatch’s control handle. The hydraulics, however, were unresponsive. The steel hatch closed with Tabingo’s hand inside – crushing it like a beer can. Shortly thereafter, two of Tabingo’s fingers had to be amputated.

It turns out the seafood company knew about the broken handle on the hatch’s hydraulic control panel. Not only did they know about the broken handle and failed to do anything about it, but they had known about the broken handle problem for two years. Consequently, Tabingo lawyered up and sued American Seafoods for negligence under the Jones Act and for unseaworthiness under general maritime law.

Tabingo v. American Seafoods – Part I

Tabingo’s case against American Seafoods was straightforward except for one part: Tabingo wanted a punitive damages award for his unseaworthiness claim against American Seafoods, which is not customary in these types of legal proceedings. Naturally, American Seafoods pushed back and filed a motion with the trial court asking it to dismiss Tabingo’s punitive damages claim. American Seafoods’ legal position was straightforward: because the Jones Act does not allow for the recovery of punitive damages for injuries to a seaman caused by shipboard negligence, then by association, the recovery of punitive damages for the same injury should also be barred from unseaworthiness claims as well. The trial court agreed with American Seafoods and dismissed, as a matter of law, Tabingo’s claim for punitive damages as a result of the American Triumph’s unseaworthiness. Tabingo and his lawyer, however, were undeterred and appealed that decision to the Washington State Supreme Court.

Tabingo v. American Seafoods – Part II

On appeal, the Washington State Supreme Court was tasked with answering a very complicated legal question: Does US maritime law permit the recovery of punitive damages against a vessel owner whose wanton and willful misconduct or grossly negligent conduct creates an unseaworthy vessel that causes severe personal injuries to a seaman on board that vessel? Despite the trial court’s ruling in the first case, and several 5th Circuit rulings, the Washington State Supreme Court answered in the affirmative, and held that a seaman making a claim for unseaworthiness can recover punitive damages as a matter of law.

To understand the significance of this legal opinion, it’s worth understanding more about the legal term of art “unseaworthiness” and “punitive damages.”

Unseaworthiness

As a general rule, vessel owners/operators have a duty to provide their crew with a seaworthy vessel. When a ship is “seaworthy”, the vessel, its crew, and its appurtenances must be reasonably fit for the vessel’s intended purpose. Put another way, when a vessel is seaworthy, she is tight, staunch, strong, well and sufficiently tackled, appareled, outfitted, furnished, equipped, in good running order, condition and repair, and fit for the purpose of her voyage and intended use. In contrast, to say a vessel is “unseaworthy” means that the vessel has insufficient equipment, defective equipment, a dearth of manpower, or has unsafe methods of work. For example, in Spinks v. Chevron Oil Co., 507 F.2d 216 (5th Cir. 1975), a court held that unreasonably slippery decks or ladders amount to an unseaworthy condition. Similarly, in Levine v. Zapata Protein (USA), Inc., 961 F.Supp. 942 (E.D. La. 1996), the court held that steep and narrow stairs on a fishing vessel were unreasonably unsafe, and constituted an unseaworthy condition as a matter of law. Also, in Mosley v. Cia. Mar. Adra., S.A., 314 F.2d 223 (2nd Cir. 1963), the court held that a vessel owner’s failure to provide adequate lighting to an area of a ship may be an unseaworthy condition, and that proof of inadequate lighting is enough to support a finding of unseaworthiness. Lastly, in Deal v. A. P. Bell Fish Co., 674 F.2d 438 (5th Cir. 1982), the court held that a vessel owner’s failure to instruct an inexperienced seaman to wear a life preserver may constitute unseaworthiness.

Indeed, in the eyes of the courts, the term “unseaworthy” is a very broad legal term of art, which is why allowing an injured crewmember to sue for punitive damages is such a big deal.

Punitive Damages – Generally

Punitive damages have been deemed to serve the purposes “of punishing the defendant, of teaching him not to do it again, and of deterring others from following his example.” Protectus Alpha Nav. Co. Ltd. v. North Pac. Grain Growers, Inc., 767 F.2d 1379 (9th Cir. 1985). Exxon Shipping Co. v. Baker, 554 U.S. 471, 2008 AMC 1521 (2008), states: “The purpose of punitive damages is not to compensate the plaintiff but to punish the defendant … and thereby to discourage the defendant … from acting in a similar way in the future.” To put things differently, punitive damages are not meant to give an injured party back something that they lost due to the incident. Instead, punitive damages are meant to punish the defendant for conduct that was especially outrageous, and the legal thinking is that defendant needs to be punished in addition to the damages he or she pays as compensatory damages. What is interesting is that the Supreme Court’s decision in Exxon Shipping Co. v. Baker established a conservative one-to-one cap on the ratio of punitive to compensatory damages in maritime law, which, at the time was one of the all-time biggest legal slaps in the face to Alaskan fishermen, but now may be legal shield for vessel owners that are saddled with unseaworthiness claims. The irony of that is immense.

Another Issue – Insurance

Many vessel owners are well insured and might think, “well, my insurance should cover this.” Not so fast. Many marine insurance policies exclude punitive damages outright, and if the policy is ambiguous or silent on the issues, then there may or may not be coverage – depending on the applicable law in that state. The issue is, for public policy reasons, many states prohibit an insured from obtaining insurance for punitive damages. The idea is that by allowing the insured to cover for such actions, it would defeat the purpose of punitive damages (i.e., punishment and deterrence). Put another way, your existing marine insurance portfolio might not cover your punitive damage claims, which means a vessel owner might not recover if he or she gets hit with a one-to-one ratio of punitive damages to compensatory damages. Fast forward to the conversation with your insurance broker: “We have indemnified you for the compensatory part of your claim, but you’re responsible for the punitive damages part. Sorry.” Indeed, this scenario is not something a vessel owner ever wants to hear.

Three Things Vessel Owners Can Do

As noted above, “unseaworthiness” is very broad and can encapsulate many problems on a vessel, which then might lead to a punitive damages claim. The following is a brief list of things a vessel owner can do to mitigate his punitive damage exposure.

1. Sell Your Boat

Kidding; sort of. When a vessel owner is ready to sell his vessel, he or she will be forced to get a survey on that vessel and that survey will have a laundry list of items on the vessel that need to be repaired. These surveys are a great starting point for tackling potential unseaworthiness issues. Why? Well, it is a starting point for any potential attorney looking to sue a vessel owner for unseaworthiness. After all, it will be a lot easier for an attorney to say the vessel owner “knew of the problem” when it was clearly marked on the annual survey. The point being, don’t let those items on your survey go unattended. Fix them before they turn into something a lot bigger.

2. Have a Beer With Your Broker

If marine insurance brokers are good for two things, it’s a cold beer and a round of golf. Jokes aside, bring your insurance binder to your broker for a sit down and have a frank conversation about the recent Tabingo ruling by the Washington State Supreme Court. Ask him (or her) their position on this issue and whether you are covered for punitive damages. And most importantly, when you finish your conversation, send your broker an email that reads something like this: “Great talking with you today, just so we are clear, my fleet [is/is not] insured for punitive damages.” This email will prevent one party from asserting one thing and alleging another – should the worst happen.

3. Have an LLC – For Each Boat

There is a very real reason that every major international shipping company has each one of its vessels acting as a limited liability company. In addition to offering the owner a swath of tax benefits, an LLC gives its owners an incredible amount of liability protection. This means that members of the LLC are not personally liable for debts and often court judgments incurred by the LLC, and often creditors are foreclosed from seeking the personal assets of the LLC members. Indeed, LLC’s are a very powerful legal tool to vessel owners who face ominous legal risks at every turn. Just remember to keep up with the corporate formalities that are required by an LLC. If you don’t, the vessel owner risks a piercing the corporate veil suit, which is not something any vessel owner wants.

Conclusion

Because of the legal broadness of the term “unseaworthy,” the Tabingo decision is not doing vessel owners any legal favors. With that, it is important for owners to look at their existing surveys to see what repair issues are still outstanding on their vessels. Obviously, there are 1,000 things on a vessel that can be fixed (or improved upon), but your survey is a wonderful place to start. It is also important to have a frank conversation with your insurance broker about your existing insurance coverage. Insurance is always a vessel owner’s first line of defense, but if your policy does not support punitive coverage, that is something (at the very least) that you need to know. Lastly, make sure you have an LLC in place. Many vessel owners in the Pacific Northwest are still running under a sole proprietorship, which, from a legal and tax prospective, is just crazy. Do not fall into this trap and get your LLC registered today. At the very least, it will give you another reason to call your insurance broker about another beer.

Isaak Hurst is the principal attorney at the International Maritime Group (IMG) – a boutique law firm that provides legal services to the fishing communities and industries of the Pacific Northwest.